Finance and Economics Discussion Series (FEDS)
September 2010
A Semiparametric Characterization of Income Uncertainty Over the Life Cycle
James A. Feigenbaum and Geng Li
Abstract:
We propose a novel approach to estimate household income uncertainty at various future horizons and characterize how the estimated uncertainty evolves over the life cycle. We measure income uncertainty as the variance of linear forecast errors conditional on information available to households prior to observing the realized income. This approach is semiparametric because we impose essentially no restrictions on the statistical properties of the forecast errors. Relative to previous studies, we find lower and less persistent income uncertainties that call for a life cycle consumption profile with a less pronounced hump.
Full paper (Screen Reader Version)Keywords: Income uncertainty, forecast errors, semiparametric estimates, lifecycle dynamics
PDF: Full Paper
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